Get ready for the biggest market correction in history

So much stimulus, and yet no growth and negligible inflation.  We are overloaded with debt, so lowering interest rates and encouraging people to borrow is not a sustainable economic strategy.  It’s like giving beers to an alcoholic.

In the movie of the same name, Morpheus eludes to the existence of the matrix, “You know something … what you know you can’t explain, but you feel it …. that there’s something wrong with the world.  You don’t know what it is, but its there.”

I feel the same way about the global economy.  We’re living in some sort of matrix where the majority of us have given away our freedom.

Since the 1950’s we have been striving for two things: easier and faster. The world has become mass produced.  We celebrate the modern shopping mall, fast food, mass produced clothing, and disposable everything.  We are socially conditioned by advertising.  It’s in every aspect of our lives.  Increasingly we live online, the connected economy, but connected with what?

Meanwhile the financial system allows us to borrow to consume more.  Let’s face it, you need more stuff; it makes you happy.  But prosperity through leveraged consumerism is a flawed concept.  We cannot keep borrowing from the future to consume today.

The longer this plays out, the bigger the slice of our income that goes towards debt-repayment, which in turn means less money to spend elsewhere.

Debt fuelled consumption drives short-term growth, but ultimately debt itself strangles growth as it reduces disposable incomes.

That’s what is happening now. Our economy is being strangled by debt and it seems the only answer is to loosen the knot a little by lowering interest rates. It’s the Creosote moment in Monty Python … “would you like one more wafer thin piece of chocolate sir” before he explodes all over the restaurant.

We have had artificial growth stimulated by low interest rates and debt for the past 20 years.  As a result, we have over invested in production capacity and now find ourselves at the end of a commodity boom with low prices and deflation.

We are running out of capacity to borrow and consume and there is no obvious fix.  When the game eventually ends (as it must) it will arguably trigger the biggest market correction in history.  That’s still a way off.  I’m sure we have enough time to loosen the knot and down a few more beers.